Omega Protein is the largest commercial harvester of menhaden, a forage fish species found in inshore waters off the eastern and southern coasts of the United States. The company has for years based its business model on selling fish meal and fish oil products (from which it has developed an omega-3 ingredient) from this resource, and is currently the biggest fish oil processor based in the US. With a stated goal of insulating the company from the vicissitudes of being tied to the fluctuating abundance of a natural resource, Omega Protein has increasingly moved into the human nutrition markets, first with the purchase of botanical ingredient supplier Cyvex Nutrition in 2010 and then with the later acquisitions of oil ingredient specialist Bioriginal and whey protein producer Wisconsin Specialty Protein.
Acquisition rationale questioned
But activist investor Wynnefield Capital, which now through its various entities owns 7.8% of the company’s shares, has put the company’s board under pressure over this strategy. Wynnefield first alleged last fall that the company’s diversification plans have been poorly managed and that shareholders’ interests would be better served by breaking the company up and selling off the assets. This view was fueled by the $382 million acquisition of another menhaden fisheries company by a South African firm.
Nelson Obus, a principal in Wynnefield, isn’t buying Omega Protein’s acquisition strategy. From his point of view, Omega Protein overpaid for its acquisitions and has now assembled a patchwork quilt of a company that lacks strategic direction.
“You can look at all of the 10Qs they’ve filed since they started buying human nutrition businesses. Most of the press releases over that time have talked about the businesses being accretive. You can add up what they paid for those businesses and it’s the range of $150 million. You can see that they have been losing money,” Obus told NutraIngredients-USA last year around the time of Wynnefield’s first 13D filing.
Omega Protein said at that time it was embarking on a strategic review of the company’s direction with the help of investment bank J.P. Morgan. Several days ago the Wynnefield filed another 13D form with the Securities and Exchange Commission in which it takes the company to task both over the speed of that review and recent bylaw changes adopted by Omega Protein that Wynnefield alleges makes future challenges to the board’s decisions more difficult.
“More than five months have now elapsed since the Issuer [Omega Protein] announced the commencement of its strategic review without the Issuer providing any additional information,” the filing asserted. As for the bylaws change, Wynnefield said the changes created “even higher hurdles and additional burdens on stockholder suffrage.”
Defense of strategy
Omega Protein, for its part, claims that it has engaged in a dialogue with Wynnefield. In a statement issued last week the company said:
“We are disappointed with the disparaging tone of Wynnefield's Schedule 13D amendment filed today, especially in light of our willingness to work cooperatively with Wynnefield. Nonetheless, the Company remains open to constructive dialogue with Wynnefield.”
“The Board and management remain focused on enhancing stockholder value. Since the appointment of Bret Scholtes as President and Chief Executive Officer four years ago, the Company's stock price has more than tripled – from $7.13 on December 30, 2011 to $23.75 on February 29, 2016, reflecting a 233% increase versus an increase of 40% for the Russell 2000 index,” the statement continued.